Rental yields are increasingly drawing investors to property despite claims to the contrary, an economist has argued.
Domain Group chief economist Andrew Wilson told Residential Property Manager that investors are actually benefiting from property despite falling rental yields.
Dr Wilson said rental yields are considerably higher than term deposits, a popular investment alternative to bricks and mortar.
“The Reserve Bank of Australia has average term deposit rates over $10,000 at around 2.4 per cent,” he said.
“That means the rental yields driver for investors is actually strengthening, despite yields for the big cities being around 4 per cent.”
Dr Wilson said it was unusual to have that disparity between house yields and term deposit yields.
“It is all a real positive, so I guess that is more incentive for investors,” he said.
“Even if capital growth weakens, yields in some centres become just as important a factor in driving demand for rental properties and that will continue to hold because there is that upward pressure on rents.”
Dr Wilson said an interest rate cut would further improve the outcome of rental yields.
“Another rate cut will improve the capacity for investors to purchase lower mortgage rates, but the other critical factor is it will push down deposit rates even further,” he said.
“It will create even more of a disparity between rental yields and term deposits – that is why a cut in interest rates would only be a good thing for rental yields.”
Dr Wilson said it is incorrect to claim rental yields are nearing record lows.
Melbourne’s yields are holding and Sydney’s are almost 4 per cent, compared to about 3 per cent a decade ago.
[Related: Rental yields hovering at record lows]